Retail Equity Research (South India Focus)

The Ramco Cements Ltd Cement

BSE CODE : 500260 NSE CODE: RAMCOCEM

BLOOMBERG CODE: TRCL:IN SENSEX : 41,306

01st January 2020

Accumulate

www.geojit.com

Rating as per Mid cap 12 month investment period

CMP Rs.752 TARGET Rs.840 RETURN 12%

INITIATING COVERAGE

Strong fundamentals attract premium valuation… The Ramco Cement Ltd ( TRCL), the flagship company of Ramco group is the 5th largest company in India with total production capacity of 16.69MT (South-12.49MT & East-4.2MT). TRCL has captive Thermal pow-er capacity of 175MW and Windmill capacity of 126MW.

TRCL is currently expanding its capacity in both South (2MT) & East (2MT) to reach total capacity of ~20.8MT by FY21 (Capex Rs3,530cr).

Post strong demand growth of ~13%YoY in FY19, industry saw weak-ness in volumes in H1FY20 (~1.5%YoY). However, the demand is likely to pick up in FY21 driven by government focus on Infra & Housing.

Reduction in corporate tax along with other stimulus announcements by the GoI has boosted the long-term outlook on the industry and will support revival in capex cycle.

Expansion in East will enable the company to diversify and eliminate its capacity constraints in the region which will drive volumes.

TRCL’s realisation and EBITDA per ton is the highest among compara-ble peers given premium products and competitive edge due to own captive windmills and sea route transportation.

Softening of fuel prices will expand margins, expect EBITDA/Ton to improve to Rs.1,261 in FY22 Vs Rs.961 in FY19.

We believe strong fundamentals attract premium valuation. We value TRCL at 12x FY22 EV/EBITDA and arrive at a target of Rs840, recom-mend Accumulate.

Corporate tax cut to revive capex cycle...boost demand

The Indian cement industry has been facing a demand-supply mismatch since FY11 due to over-supply and demand slowdown. Capacity utilisation declined to ~65% in FY17-FY18 but sharply improved to 72% in FY19 due to strong im-provement in demand. Demand grew 13.6% in FY19 against supply growth of ~3%. However, many companies have announced capacity additions recently, ~58MT is expected over next two years Vs ~40MT in the last two years. We ex-pect utilisation to come down to ~70% in FY20 and then improve to 72% in FY21E supported by government’s infra & housing projects.

Key beneficiary of affordable housing & infra spends TRCL is one among the leaders in South India and has expanded to East in FY18. GoI’s strong focus on Housing & Infra supports demand in TRCL’s operating re-gion. Out of total 7.97mn sanctioned houses under PMAY (Urban), 3.89mn (49%) houses are in South and East regions. However, so far only 1.9mn houses have been completed in the country (0.9 million in South & East regions). Government spending on road projects, irrigation, metro and smart cities will also support cement demand. However, uncertainty over ongoing projects in Andhra can have some impact on volumes in the short-term.

Strong capacity expansion with stable leverage... TRCL is currently expanding its cement capacity in both South and East regions by 2MT each to reach a total capacity of 20.8MT by FY21E with a capex of Rs3,530cr (includes clinker capacity of 3.75MT). The expansion will provide penetration and diversification opportunities resulting in volume growth espe-cially in East where the company has capacity constraints. Despite huge capex we expect the leverage to remain stable with Debt/Equity at 0.5x by FY21E.

Strong fundamentals attract premium Post the sharp demand improvement in FY19, the industry saw some weakness

in demand in H1FY20 (~1.5%YoY). However, the demand is expected to pick-up

in H2FY20 driven by GoI’s strong focus on infra & housing. The cut in corporate

tax rate has improved the long-term outlook. The softness in fuel prices will

improve margins. Considering the strong fundamentals, we value TRCL at 12x

FY22 EV/EBITDA (currently trades at 12.6x Vs 3Yr Avg of 15.6x -1Yr Fwd) to

arrive at a Target of Rs.840, recommend Accumulate.

Company Data

Market Cap (cr) Rs17,715

Enterprise Value (cr) Rs18,910

Outstanding Shares (cr) 23.8

Free Float 57.0%

Dividend Yield 0.4%

52 week high Rs845

52 week low Rs554

6m average volume (cr) 0.03

Beta 0.98

Face value Rs.1

Shareholding (%) Q4FY19 Q1FY20 Q2FY20

Promoters 42.75 42.75 42.66

FII’s 11.54 11.99 11.74

MFs/Insti 23.57 22.91 21.58

Public 11.27 11.34 10.71

Others 11.05 11.02 13.31

Total 100.0 100.0 100.0

Promoter pledge % 1.97%

Price Performance 3 month 6 Month 1 Year

Absolute Return 2.5% -4.2% 18.1%

Absolute Sensex 8.2% 3.9% 14.9%

Relative Return* -5.7% -8.1% 3.2%

over or under performance to benchmark index

Standalone (cr) FY20E FY21E FY22E

Sales 5,741 6,719 7,393

Growth (%) 11.6 17.0 10.0

EBITDA 1,269 1,613 1,870

EBITDA Margins% 22.1 24.0 25.3

PAT Adj. 649 860 1,036

Growth (%) 28.3 32.5 20.4

Adj.EPS 27.3 36.1 43.5

Growth (%) 28.3 32.5 20.4

P/E 27.6 20.8 17.3

P/B 3.5 3.1 2.6

EV/EBITDA 15.4 12.3 10.1

ROE (%) 13.7 15.9 16.5 D/E 0.4 0.5 0.3

Vincent Andrews

Research Analyst

www.geojit.com

27th December 2018 Valuations During the last 5 year period, the valuation saw a de-rating in FY14-FY16 period. The main reason for de-rating was the volume de-growth witnessed in this period (-11% in FY15 & -6% in FY16). It was due to the demand slowdown in southern states on account of scarcity of river sand and blue metal in addition to shrinkage of construction activity owing to inadequate in-frastructural spending by the Government subsequent to bifurcation of Andhra Pradesh. Post this slow down period, TRCL’s volumes grew at 16% in FY17. Further, the sharp decline in fuel prices and surge in realisation aided margin expansion. So, valuations started re-rating since start of FY17 and went to a peak of 19.8x in April 2018. However, the valuations did not sus-tain at these levels as the subsequent sharp increase in fuel price impacted margins. Fuel pric-es reached historical peaks in FY19 and valuations started to decline from the start of FY19 on the fear of margin impact though volume growth was strong (~13%YoY) in the year. Post the sharp improvement in demand in FY19, the industry saw some weakness in volumes (~1.5%YoY in H1FY20). However, we expect the demand to pick-up in H2FY20 driven by GoI’s focus on infra & housing. The cut in corporate tax rate and other recent stimulus measure by the GoI have improved the long-term outlook on the industry. TRCL currently trades at 1yr Fwd EV/EBITDA of 12.6x Vs 3Yr Avg of 15.6x. We value TRCL at FY22 EV/EBITDA of 12x considering the strong fundamentals compared to peers and the improved long-term demand outlook.

Peer comparison

Revival in capex cycle will support India’s cement capacity utilisation… India’s cement industry ranks 2nd to China with an installed capacity of ~469 as of FY19. The industry has been facing a demand-supply mismatch since FY11 due to over-supply & demand slowdown. Capacity utilisation which had declined to ~65% in FY17-FY18 started to improve in FY19 due to sharp improvement in demand coupled with lower capacity additions. Demand has seen a growth of 13.6% in FY19 against supply growth of ~3%. Capacity utilisation has reached ~72% in FY19. Post the high capacity addition year of FY11 (82MT), the capacity addi-tions have declined to an average of ~20MT during the last 5 years. However, many companies have announced capacity additions recently, ~58MT is expected over next two years (FY20E –FY21E) Vs ~40MT in last two years. The strong supply and the recent weakness in demand is expected to result in a decline of capacity utilisation to ~70% in FY20E but will improve to ~72% in FY21E supported by strong GoI focus on infra & housing and revival in capex cycle.

India’s capacity utilisation has

improved sharply from ~65%

in FY18 to 72% in FY19 due to

strong demand. Strong supply

and the recent weakness in

demand is expected to result

utilisation of ~70% in FY20E

but to improve to ~72% in

FY21E supported by revival in

capex cycle

TRCL currently trades at 1yr Fwd EV/EBITDA of 14.3x Vs 3Yr Avg of 15.6x. We value TRCL at FY21 EV/EBITDA of 14x considering the strong fundamentals compared to peers and the improved long-term demand outlook. .

Strong margins and growth attract premium valuation

1 Yr Fwd EV/EBITDA band

Source: Bloomberg, Geojit Research.

India cement capacity Utilisation to decline in FY20E...

Source: Company, Geojit Research.

Source: Bloomberg, Geojit Research.

Company Mcap

(cr) Sales ( Rs cr) EBITDA Margin %

Sales

CAGR

EBITDA

CAGR

RoE

% EBITDA/Ton EV/EBITDA

RoCE

%

FY19 FY20E FY21E FY19 FY20E FY21E FY19-

21E

FY19-

21E FY19 FY19 FY20E FY21E FY19 FY20E FY21E FY19

Dalmia 15149 9484 10304 11513 20% 22% 23% 10% 16% 2.9 1039 1148 1215 9.4 9.6 8.0 3.3

Ramco 17883 5146 5741 6719 20% 22% 24% 14% 25% 11.3 932 1062 1174 18.5 15.4 12.3 9.8

India Cem 2202 5461 5623 6092 11% 14% 15% 6% 20% 1.3 503 585 642 8.6 6.8 5.9 2.0

JK Lakshmi 3282 4302 4741 5125 11% 15% 15% 9% 30% 13.6 619 590 712 13.9 10.5 10.5 7.3

Orient Cem 1407 2522 2534 2773 12% 15% 15% 5% 16% 13.6 487 536 548 8.5 7.0 6.4 5.3

Sagar Cem 1154 1218 1348 1535 12% 17% 18% 12% 37% 13.6 3.6 453 672 740 10.9 6.9 5.8

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Government thrust on Infra & Housing augers well for TRCL... TRCL is one among the leaders in South India and has expanded to East in FY18. Demand outlook in TRCL’s operating regions looks positive on account of government’s strong focus on affordable housing & Infra including irrigation projects in Andhra Pradesh and Telengana. Housing & Infra constitutes 65% & 20% of the total cement demand in India. In FY19, cement demand in the country has grown to double digits (~13%) mainly led by government initiat-ed projects like low cost housing under PMAY schemes, irrigation works in South India states, metro works, road construction and progress in residential construction. We expect incremental demand from “Housing for All” projects given increase in the number of sanctioned houses in the recent quarters. Out of total 7.97 million sanctioned houses under PMAY (Urban), 3.89 million (49%) houses are in South and East regions where TRCL’s oper-ates. However, so far only 1.9 million houses have been completed in the country (0.9 million in South + East regions). Even if we assume a reduced execution rate of 25%, PMAY-Urban project alone will create an additional annual demand of ~16MT in the country (~8MT in South+ East regions). GoI is also planning to construct 51,182 km road within FY22 and is targeting to complete 12,000km in FY20. Based on historical execution rate, we expect an additional annual de-mand of ~11MT in the country from road construction. Various Demand drivers:

GoI initiative ‘Housing For All by 2022’.

Budget 2018-19, GoI announced ‘Affordable Housing Fund’ of Rs 25,000cr under Nation-al Housing Bank (NHB) which will be utilised for easing credit to home-buyers.

The GoI has decided to adopt cement instead of bitumen for the construction of all new road projects on the grounds that cement is more durable & cheaper to maintain than bitumen in the long run.

Road Ministry targets 12,000 Kms of road construction in FY20.

Metro rail projects in major cities.

GoI’s initiatives like Smart Cities Mission, AMRUT and Swachh Bharat Abhiyan. Ongoing expansion giving visibility to volume growth … TRCL is currently expanding its capacity in both South and East regions by 2MT each to reach a total capacity of 20.8MT by FY21E with total outlay of Rs3,430cr. The expansion will provide pen-etration and diversification opportunities resulting in volume growth especially in East where the company currently has capacity constraints. Out of the total 2MT addition in East, 1.1MT expan-sion at the existing grinding unit in West Bengal has already been completed in April, 2019 and the remaining 0.9MT new capacity addition in Odisha is expected to be completed in Oct 2019. And, out of total new addition of 2MT in South, 1.1MT capacity which is adding in Andhra Pradesh is expected to be completed by Dec 2019 and the new integrated unit with a grinding capacity of 1MT (2.25MT clinker capacity) in Kurnool, Andhra Pradesh is expected to be completed by March, 2021, With this, TRCL will become the largest cement manufacturer in Andhra Pradesh. Addition-ally, the company is adding a clinker capacity of 1.5MT in Andhra Pradesh which is expected to be completed by July, 2020. However, the cancellation of major projects in Andhra Pradesh by the new government is expected to have some impact on demand in the short-term.

We expect the higher de-mand from affordable hous-ing and increased budget allocation towards road and irrigation projects will sup-port demand in TRCL’s oper-ating region

TRCL is currently expanding

its capacity in both South and

East regions by 2MT each to

reach a total capacity of

20.8MT by FY21E with total

outlay of Rs3,530cr.

Capacity additions

Source: Company, Geojit Research.

www.geojit.com

Among leaders in South region… TRCL stands in the highest position among comparable peers in South India in terms of Reali-sation & Profitability and in better position on the basis of leverage. The better realisation comes from strong brand image. Despite lower capacity utilisation, TRCL is among the low-cost producers in India. TRCL’s EBITDA margin is 20% which is among best in the industry. TRCL has also higher RoE & RoCE and has the lowest Debt-Equity compared to peers in South India.

Realisation per Ton among the highest (FY19)

Source: Company, Geojit Research.

EBITDA per Ton among the highest (FY19)

Source: Company, Geojit Research.

Highest EBITDA Margin (FY19)

Source: Company, Geojit Research.

Highest RoCE (FY19)

Source: Company, Geojit Research.

www.geojit.com

TRCL has been a consistent outperformer to industry in terms of volume growth ex-cept for FY15 and FY16 where the volume growth was negative largely due to demand slowdown in south-ern states on account of scarcity of raw materials and political disturbance due to bifurcation of Andhra Pradesh

Healthy historical performance during turbulence… TRCL has been a consistent outperformer in the industry in terms of volume growth except for FY15 and FY16 where the volume growth was negative. The poor performance in FY15 & FY16 was largely due to the demand slowdown in southern states on account of scarcity of raw materials like, river sand and blue metal, affecting the construction activities along with subdued economic conditions and shrinkage of construction activity owing to inadequate in-frastructural spending by the Government subsequent to bifurcation of Andhra Pradesh. Post this slow down period, TRCL’s volumes grew at 15.4%CAGR compared to industry CAGR of 6.0% over FY16-FY19. During this period the company has not done any significant capacity expansion. Revenue grew at 13% CAGR in the same period. However, EBITDA growth during this period was flat mainly due to surge in fuel and freight costs. The lower utilisation com-pared to industry was due to the surplus capacity in the South region where the company mainly operates. The cash flow generation was robust during this period(~Rs4,100cr) which enabled the company to reduce Debt/Equity from 0.7x in FY16 to 0.3x in FY19 in addition to the funding towards capex of ~Rs2,100cr.

Highest sales growth (FY19-21E)

Source: Company, Geojit Research., Bloomberg

EBITDA growth among the highest (FY19-21E)

Source: Company, Geojit Research., Bloomberg

Volume growth outperforms in recent years

Source: Company, Geojit Research.

www.geojit.com

On a per ton basis TRCL’s Power & Fuel and Freight cost are the lowest among comparable peers. TRCL enjoys the benefits of low cost power from own windfarm and captive power plants

Lowest Power & Fuel and freight cost giving competitive edge... Fuel and freight charges are the major components of the total manufacturing cost of the com-pany representing ~20% and 23% respectively. On a per ton basis TRCL’s Power & Fuel and Freight cost are the lowest among comparable peers. Additionally, TRCL enjoys the benefits of low cost power from own windfarm and captive power plants which is the main reason for lowest Power & Fuel cost. The company also uses low cost fuels such as lignite and power plant ash as alternative fuels in the kiln to reduce overall fuel cost. In the case of freight, TRCL has a competitive edge of using sea route for the transportation of goods which is the lowest cost medium available as most of its plants are in coastal area. Additionally, the strategic loca-tions of the grinding units proximately to flyash or slag availability areas and major cement consumption areas enable the company to economise its transportation costs.

Improving capacity utilisation...

Source: Company, Geojit Research.

Power & Fuel per Ton among lowest ...

Source: Company, Geojit Research.

Fuel & transportation eats the major chunk...

Source: Company, Geojit Research.

www.geojit.com

27th December 2018

Fuel prices peaked-out...will support margins but Realisation is the key to watch... TRCL’s EBITDA margins were at peak (~30%) in FY16 & FY17 mainly on account of fall in fuel and crude prices and surge in realisation. The price of fuel (pet coke) in international market had come down mainly due to lesser demand from China which reduced the cost of power & fuel. The inventories built up by the Company, when pet coke was available at lower prices had helped it to manage the fuel cost even when the fuel prices started to increase sub-sequently. Also, consequent to the decline in crude prices, the diesel prices had come down which resulted in reduction in mining and transportation cost. Further, for the other deriva-tives of crude like Polypropylene the price had also come down which led to reduction in prices of HDPE bags. However, the fuel prices started to surge from the start of FY17 and had reached a peak in FY19. So the margin started to decline from peak of 30% in FY16 & FY17 to 25% in FY18 and 20% in FY19. However the data shows the fuel prices has peaked out in Q2FY19 and some softening is being witnessed due to lower demand. So the margins will improve on account of reduction in fuel prices . Additionally, cement prices witnessed a sharp improvement in recent quarter. On account of election and economic slowdown the industry volume was muted (~1.5%YoY) in H1FY19. GDP growth was only 4.5% in Q2FY20. This has subsequently impacted the cement prices also. the prices could not sustain the recent sharp improvement. We expect the demand to pick up in H2FY20 supported by GoI’s strong focus on housing & Infra. Additionally, the reviv-al in capex cycle triggered by the corporate tax rate cut will also aid demand in future. The capacity utilisation of the industry has improved from 65% in FY18 to 72% in FY19 but is expected to decline to ~70% in FY20E and then improve to ~72% in FY21E. So we expect the realisation to witness some pressure in the short-term but to improve then along with de-mand improvement.

Margins will improve on ac-count of reduction in fuel prices and recent improvement oin realisation.

Low freight cost per Ton (FY19)...

Source: Company, Geojit Research.

Competitive edge of using sea-route for transportation...

www.geojit.com

Speciality segment projected to grow at 20% in FY19

We factor a 32-34% EBITDA

margin range for FY18-20.

Pet coke prices peaked out ...

Source: Bloomberg, Geojit Research.

Diesel price trend...

Source: Bloomberg, Geojit Research.

Benign crude prices continues...

Source: Bloomberg, Geojit Research.

Recent sharp surge in cement prices (average)...

Source: CMIE, Geojit Research.

Ramco’s Realisation trend...

Source: Company, Geojit Research.

www.geojit.com

27th December 2018 Financial Analysis…

Revenue to grow at 13% CAGR... TRCL’s revenue has grown at ~7% during the last 5 years. The lower growth was due to the slow down in FY15 & FY16 where the growth was impacted on account of the demand slow-down in southern states due to scarcity of raw materials like, river sand and blue metal, affect-ing the construction activities along with subdued economic conditions and shrinkage of con-struction activity owing to inadequate infrastructural spending by the Government subse-quent to bifurcation of Andhra Pradesh. Post this slow down period, TRCL’s volumes grew at 15.4%CAGR compared to industry CAGR of 6.0% and revenue grew at ~13%CAGR over FY16-FY19. We expect revenue to grow at 13%CAGR over FY19-22E aided by commissioning of additional capacities and demand improvement supported by GoI’s strong focus on Housing & Infra and revival in capex cycle.

EBITDA Margin to improve... TRCL’s EBITDA has grown at 13%CAGR in the last 5 years. EBITDA margin witnessed im-provement from 15.3% in FY14 to a peak of 30% in FY16 mainly on account of reduction in pet coke & crude prices and improvement in realisation. However, due to subsequent uptrend in the fuel prices and de-growth in realisation margins declined to 20% as on FY19. Now the pet coke prices have peaked out in recent quarters which along with improvement in realiza-tion will support margins.

Debt to Equity to remain lower….. The company’s Debt-Equity has been declining since FY16. The robust cash flow generation has enabled the company to reduce Debt/Equity from 0.6x in FY16 to 0.3x in FY19 in addition to the funding towards capex of ~Rs2,100cr. Though the company is expected to increase debt on account of the ongoing capacity additions, the debt-equity is expected to remain lower at 0.3x in FY22E.

1 year forward P/E peak of 29x in FY19 while low was 16x in FY16

We expect the revenue to grow at 10% CAGR over FY18-20E and PAT to grow at a CAGR of 6% during the same period and EBITDA margin to stabilize around 33%.

Revenue growth trend ...

Source: Company, Geojit Research.

EBITDA and EBITDA Margin trend ...

Source: Company, Geojit Research.

D/E to remain lower ...

Source: Company, Geojit Research.

www.geojit.com

PAT to grow at 20% CAGR over FY19-22E… TRCL’s PAT margin improved sharply to 15%-16% during FY16-FY17 period on account of lower fuel prices. In the subsequent years, as the fuel prices started to increase it has impact-ed the PAT margin to decline to 9.8% in FY19. However PAT has grown at a CAGR of ~30%CAGR during the last 5 years. With benign crude price, peaking out of pet coke prices, im-provement in realisation and the cut in corporate tax rate we expect PAT margin to improve to 14% by FY22E and PAT to grow at 27% CAGR over FY19-FY22E.

RoE to improve from 11.9% to 14.7% in next two years...…

The expectation of margin improvement and volume growth from new capacity additions will contribute to earnings growth. Despite capacity additions, we believe the additional debt will be limited due to strong cash flows (~Rs4,600cr over FY19-22E). So the increase in interest cost will be controlled. We expect RoE to improve from 11.9% in FY19 to 16.5% in FY22E.

About the company

TRCL is the flagship company of the Ramco Group, headquartered in Chennai with a current total production capacity of 16.69 MT (South-12.49MT & East-4.2MT). The company is the fifth largest cement producer in the country. TRCL is currently expanding its capacity in both South and East regions with a total capex of Rs3,430cr to reach a capacity of ~20MT (South-15.64MT & East-7.3MT) by FY21. The capex includes expansion of its clinker capacity from 3.15MT to 4.6MT at its Jayanthipuram plant (AP) and MT greenfield cement capacity in AP. TRCL has captive Thermal power capacity of 175MW and Windmill capacity of 126MW. Ramco Windfarms Ltd is a 71.5% stake subsidiary with capacity of 39.8MW. Products... The company manufactures various grades of cement which includes PPC, OPC 43, OPC 53, SRC and Ready Mix Concrete (RMC). TRCL also has customer support wing, MACE (Masons, Architects, Contractors and Engineers) that provides engineering solutions for huge projects, after-sales support services to Individual home builders, on-site guidance, some of the major tests on concrete , all free of cost.

PAT margin to improve from 9.8% to 11.4% by FY21 ...

Source: Company, Geojit Research.

RoE to improve from 11.9% to 15.9% by FY21 ...

Source: Company, Geojit Research.

www.geojit.com

Key Management

Plants

Key risk Any slowdown in in the economy can impact the volume and realization growth.

Any adverse movement in manufacturing costs like raw materials, fuel and transporta-tion can impact earnings.

Any delay in commissioning of the new capacities.

TRCL’s ~22% capacity is in Andhra and the cancellation of the major projects in the state by the new government can have some impact on volumes

27th December 2018

Name Designation Remarks

Mr. P.R. Venketrama Raja Chairman & MD

A Bachelor’s degree in Chemical Engineering from Madrass University and MBA from Uni-versity of Michigan, USA.

Has more than 3 decades of industrial experi-ence in textiles, cement and IT sectors.

Mr. A.V. Dharmakrishnan Chief Executive Officer Has more than 3 decades of experience in the

company.

He is a Chartered Accountant

Mr. S. Vaithiyanathan Chief Financial Officer He is a Chartered Accountant.

www.geojit.com

27th December 2018

Standalone Financials

Y.E March (Rs Cr) FY18A FY19A FY20E FY21E FY22E

Sales 4,406 5,146 5,741 6,719 7,393

% change 11.6 16.8 11.6 17.0 10.0

EBITDA 1,099 1,037 1,269 1,613 1,870

% change -6.5 -5.7 22.4 27.1 16.0

Depreciation 292 299 335 389 427

EBIT 807 738 934 1,224 1,444

Interest 59 51 90 121 118

Other Income 37 28 39 45 56

PBT 785 716 883 1,147 1,382

% change -7.7 -8.8 23.4 29.9 20.4

Tax 229 210 234 287 345

Tax Rate (%) 29.2 29.3 26.5 25.0 25.0

Reported PAT 556 506 649 860 1,036

Adj.* 0 0 0 0 0

Adj. PAT 556 506 649 860 1,036

% change -14.4 -9.0 28.3 32.5 20.4

No. of shares (cr) 24 24 24 24 24

Adj EPS (Rs) 23 21 27 36 44

% change -14.4 -9.0 28.3 32.5 20.4

DPS (Rs) 3.6 3.6 3.6 3.6 3.6

-Y.E March (Rs Cr) FY18A FY19A FY20E FY21E FY22E

Cash 88 56 239 349 629

Accounts Receivable 442 490 629 736 810

Inventories 560 560 638 747 817

Other Cur. Assets 208 270 267 313 344

Investments 159 175 195 225 255

Gross Fixed Assets 8232 8553 10053 11553 12153

Net Fixed Assets 5246 5321 6486 7597 7771

CWIP 150 831 550 550 250

Intangible Assets 77 77 77 77 77

Def. Tax (Net) 0 0 0 0 0

Other Assets 160 329 294 344 379

Total Assets 7090 8108 9376 10938 11331

Current Liabilities 1186 1308 1507 1736 1770

Provisions 91 42 46 52 57

Debt Funds 999 1415 1915 2465 1865

Other Liabilities 772 884 885 887 889

Equity Capital 24 24 24 24 24

Reserves & Surplus 4019 4437 5001 5776 6727

Shareholder’s Fund 4042 4460 5024 5799 6750

Total Liabilities 7090 8108 9376 10938 11331

BVPS 168 186 210 243 283

Y.E March FY18A FY19A FY20E FY21E FY22E

Profitab. & Return

EBITDAmargin (%) 25.0 20.1 22.1 24.0 25.3

EBIT margin (%) 18.3 14.3 16.3 18.2 19.5

Net profit mgn.(%) 12.6 9.8 11.3 12.8 14.0

ROE (%) 14.3 11.9 13.7 15.9 16.5

ROCE (%) 8.8 7.3 8.2 9.4 10.0

W.C & Liquidity Receivables (days) 41.3 33.1 35.6 37.1 38.2

Inventory (days) 47.0 39.7 38.1 37.6 38.6

Payables (days) 127.1 113.0 96.4 87.2 91.6

Current ratio (x) 0.7 0.7 0.8 0.8 1.0

Quick ratio (x) 0.3 0.3 0.4 0.4 0.5

Turnover &Levg. Gross asset T.O (x) 0.5 0.6 0.6 0.6 0.6

Total asset T.O (x) 0.6 0.7 0.7 0.7 0.7

Int. covge. ratio (x) 13.6 14.5 10.4 10.1 12.2

Adj. debt/equity (x) 0.3 0.4 0.4 0.5 0.3

Valuation ratios EV/Sales (x) 4.2 3.7 3.4 3.0 2.6

EV/EBITDA (x) 16.9 18.5 15.4 12.3 10.1

P/E (x) 32.3 35.4 27.6 20.8 17.3

P/BV (x) 4.4 4.0 3.5 3.1 2.6

PROFIT & LOSS ACCOUNT BALANCE SHEET

RATIOS CASH FLOW

Y.E March (Rs Cr) FY18A FY19A FY20E FY21E FY22E

Net inc. + Depn. 848 804 984 1249 1463

Non-cash adj. 248 213 234 287 345

Other adjust. -140 -134 -144 -165 -227

Changes in W.C 156 -93 -51 2 -107

C.F.Operation 1113 790 1023 1373 1474

Capital exp. -494 -1202 -1219 -1500 -300

Change in inv. 0 0 -20 -30 -30

Other invest.CF 9 7 0 0 0

C.F - investing -485 -1194 -1239 -1530 -330

Issue of equity -168 0 0 0 0

Issue/repay debt -468 775 503 554 -596

Dividends paid -85 -85 -85 -85 -85

Other finance.CF -66 -48 -90 -121 -118

C.F - Financing -787 643 328 347 -800

Chg. in cash -157 242 147 110 280

Closing cash 88 93 239 349 629

www.geojit.com

Source: Bloomberg, Geojit Research.

27th December 2018

PRICE HISTORY Dates Rating Target 01st Jan ,2020 Accumulate 840

Investment Rating Criteria

Large Cap Stocks; Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%. Neutral - Not Applicable

Mid Cap and Small Cap; Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being up-graded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review

General Disclosures and Disclaimers

CERTIFICATION

I, Vincent K A, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit. COMPANY OVERVIEW

Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Ex-change Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time. DISTRIBUTION OF REPORTS

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report. GENERAL REPRESENTATION

The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, war-ranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the infor-mation discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. RISK DISCLOSURE

Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, finan-cial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the invest-

ments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital. FUNDAMENTAL DISCLAIMER

We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or anyof its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report.

www.geojit.com

27th December 2018

The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatso-ever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking state-ments are not predictions and may be subject to change without notice. JURISDICTION

The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies men-tioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. REGULATORY DISCLOSURES:

Geojit’s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) &Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our busi-ness as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and under-take that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership*:

Geojit confirms that: It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein. Further, the Analyst confirms that:

he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company.

he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered

2. Disclosures regarding Compensation:

During the past 12 months, Geojit or its Associates:

(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject com-pany (c) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject com-pany is / was not a client during twelve months preceding the date of distribution of the research report. 3. Disclosure by Geojit regarding the compensation paid to its Research Analyst:

Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage ser-vices or transactions pertaining to trading in securities of companies contained in the Research Reports. 4. Disclosure regarding the Research Analyst’s connection with the subject company:

It is affirmed that the I, Vincent K.A, Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company 5. Disclosure regarding Market Making activity:

Neither Geojit/its Analysts have engaged in market making activities for the subject company. Please ensure that you have read the “Risk Disclosure Docu-ments for Capital Market and Derivatives Segments” as prescribed by the Securities and Exchange Board of India before investing.

Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances: griev-ances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No: IN-H200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226